Difficulties ahead, but businesses optimistic

South Island businesses are optimistic about the future but they are still expecting some tough times ahead in the short term, a survey out this morning says.

The Polson Higgs-McCulloch and Partners survey of South Island businesses shows that business leaders expect their operating environment to become increasingly complex over the next five years.

Polson Higgs partner Michael Turner told the Otago Daily Times that while it was heartening to see that about half of the respondents expected their profitability to increase during the next five years, compared with the 23% who expected profitability to drop, a substantial majority also expected a challenging future.

The areas of greatest concern included greater competition, greater demand for products and service innovation, increasing regulation, higher operating costs, greater difficulties securing skilled employees and higher cost of finance.

The last two were the probably the most important, he said.

"As New Zealand and most of the world come out of the recession, the demand on skilled labour is going to grow. Not only is there going to be a battle among New Zealand firms to retain and attract staff, but there is the growing gap between New Zealand and Australia."

About 20% of South Island firms were planning to not increase salaries in the next year, while 50% expected to increase salaries by between 1% and 2%, Mr Turner said.

That sentiment was possibly based on an ability to pay and a conservatism, given the difficult times businesses had come through.

However, it conflicted with the views expressed that securing skilled staff would become more difficult and that concern was likely to increase, particularly if salaries continued to fall behind Australia.

The main area of the survey that concerned Mr Turner was the deterioration in the availability of finance for businesses.

Many lenders - finance companies, in particular - had withdrawn from the market and those remaining had taken a more conservative approach.

Looking ahead, businesses believed the availability of finance would not alter from present levels during the next 12 months.

"Given that finance is the lifeblood for growth and expansion, we expect this to be a containment factor for business throughout 2010. People wanting to expand or with good ideas will have difficulty funding them."